By the numbers: fraud statistics

Measuring insurance fraud is an elusive target. No single national agency gathers omnibus fraud statistics. Insurance fraud data thus are relatively piecemeal, making our understanding of insurance fraud an ongoing work in progress.

Insurance companies, associations and diverse state and federal agencies each gather fraud data related to their own missions. But the kind, quality and volume of data they compile vary widely.

Some data in this statistics section also includes non-fraud numbers as context for the larger dimensions of a listed issue.

Fraud costs for insurers

Fraud accounts for 5-10 percent of claims costs for U.S. and Canadian insurers. Nearly one-third of insurers (32 percent) say fraud was as high as 20 percent of claims costs;

57 percent of insurers predict an increase in personal-property fraud by policyholders. Around 58 percent say the same for personal auto insurance, and 69 percent expect a rise in workers-compensation scams;

Contractors

Most contractors are ethical and honest. Yet unlicensed and dishonest operators try to exploit often-traumatized homeowners after storms.

Contractors may demand large cash down payments, then disappear without doing the needed work. Shoddy workmanship with substandard materials are other problems. Contractor schemes can cost homeowners thousands of dollars in uninsured bills.

Automobile

Bodily injury claims

Staged-crash rings fleece auto insurers out of billions of dollars a year by billing for unneeded treatment of phantom injuries. Usually these are bogus soft-tissue injuries such as sore backs or whiplash, which are difficult to medically identify and dispute.

Automobile claim fraud and buildup added $5.6 billion-$7.7 billion in excess payments to auto-injury claims paid in the U.S. in 2012;

Excess payments represented 13-17 percent of total payments under the five main private-passenger auto injury coverages;

Average claimed economic losses grew 8 percent annualized among personal-injury claimants from 2007 to 2012. That’s $14,207 per claimant in 2012, and includes expenses for medical care, lost wages and other out-of-pocket expenses.

Average claimed losses among bodily-injury claimants grew 4 percent, reaching $10,541 in 2012. Measures such as claimants with no visible injuries at the accident scene suggest a continuing decline in severity of injuries. (Insurance Research Council, March 2014)

Premium rating errors

Dishonest drivers try to lower auto premiums by lying on their insurance application or renewal. Among the ruses: registering vehicles in states where premiums are lower; lowballing stated mileage; and saying a commercial vehicle is used mainly for personal use.

Auto insurers lost $15.9 billion due to premium rating errors in private-passenger auto in 2009;

Insurers identified potential fraud in 7.4 percent of automobile claims within the first 125 days;

The insurer couldn’t identify policyholders and/or place them at the stated garaging address in 21.5 percent of claims; and

Fraudsters are beginning to use a “credit card” model to secure larger settlements. They file small initial claims to test the carrier and then lodge large multi-feature claims. (Inovatus, February 2013)

Hotspot states

New York

Claimed losses for medical expenses, lost wages and other expenses related to injuries from auto crashes in the New York City area have risen 70 percent over the past decade. This surpasses the 49-percent increase in medical-care inflation over the same period;

Nearly one in four claims (23 percent) involved the appearance of claim abuse — fraud, material misrepresenting of facts, or buildup;

Claims from the New York City metro area were more than four times as likely to involve apparent abuse (35 percent v. 8 percent for the rest of the state); and

Massachusetts launched task forces in 13 communities against widespread staged-crash rings amid public outcry after 65-year-old grandmother Altagracia Arias died in a setup crash in 2003.

Drivers in the 13 communities have saved $875 in auto premiums per year;

Drivers in Lawrence — the “worst hotbed of fraudulent claims” — have saved more than $68 million;

Larger chiropractors in Lawrence have decreased in both clinic counts and billings by up to 90 percent. High-volume physical therapy clinics (billings exceeding $100,000 annually) have been eliminated, and attorney involvement in PIP claims has dropped; and

Staged accidents in Massachusetts have been reduced dramatically as people around the state, who used to be involved in fraudulent activities, have taken notice of the crackdown and altered their activities. (Insurance Fraud Bureau of Massachusetts, April 2013)

California

The state fraud bureau received 17,981 suspected fraudulent claims in FY 2012-13, assigned 721 new cases, made 401 arrests, and referred 304 submissions to prosecuting authorities. The potential loss amounted to $120.1 million;

The fraud bureau assigned 231 new cases and made 222 arrests and 172 referrals to prosecuting authorities involving organized automobile activity in major urban areas. Potential loss amounted to $5.1 million; and

Insurer anti-fraud technology

Insurer use of anti-fraud technology is rising, more insurers see a positive ROI, and increasingly they rely on technology to counter emerging threats such as underwriting scams, money-laundering and cyberfraud.

Yet advanced tools such as predictive analysis and geo-mapping are far from widespread among insurers.

95 percent of responding insurers use anti-fraud technology, up from 88 percent in 2012;

71 percent say detecting claims fraud is the primary use of their anti-fraud technology;

About half (53 percent) cite lack of IT resources as the main stumbling block in implementing anti-fraud technology;

Arson

Data for insurance arsons are elusive. However, broader national arson figures provide some context for examining the trend of illegally burning homes and businesses for insurance payouts. In general, for example, fires and arsons have declined in recent years. The reasons are unclear.

Tens of thousands of arsons may go unreported annually. Many likely are insurance arsons. Some unreported insurance fires also may have killed or injured the arsonists, innocent bystanders or fire fighters.

Chicago reported 61 building arsons though it experienced at least 192;

Houston reported 25 intentional fires while having 224;

Indianapolis reported no arsons despite experiencing at least 216;

New York reported 11 arsons instead of 1,347 it really had;

Up to half of the 3,000 fire deaths each year should be treated as homicides; and

Much of the $15.5 billion paid last year by insurers (and clients) should be contested because arson often involves fraud. (Scripps News, November 2013)

Public attitudes

A relatively large number of consumers remain at risk of committing this crime. They believe it’s acceptable to increase insurance claims to make up for deductibles. Even so, those numbers have declined in recent years.

24 percent say it’s acceptable to pad an insurance claim to make up for the deductible — 33 percent said it’s acceptable in 2002;

18 percent believe it’s acceptable to pad a claim to make up for premiums paid in the past;

Younger males were much more likely to condone claim padding. And 23 percent of 18-34 year-old males say it’s alright to increase claims to make up for earlier premiums. This compares with 5 percent of older males and 8 percent of females of the same age;

More than three times more likely to inflate an insurance claim than adults over age 40 (7 percent vs. 2 percent); and

More than twice as likely to lie to their spouse, boyfriend, girlfriend or partner about something significant (48 percent v. 18 percent).

Regardless of age, people who believe lying and cheating are a necessary part of success are more likely to lie and cheat. This belief is one of the most significant and reliable predictors of dishonest behavior in the adult world. Cynics are:

Three times more likely to inflate an insurance claim (6 percent vs. 2 percent) or lie to a customer (22 percent vs. 7 percent); and

Public outreach

Public-outreach can measurably increase people’s intolerance of insurance fraud, and decrease their likelihood of committing this crime. This was proven by a five-year public-outreach campaign by a state anti-fraud agency in Pennsylvania.

The social-market campaign centered around eight statewide TV and radio consumer spots working to encourage consumer attitude and behavior changes.

By 2013 the campaign recorded increases in consumers who:

Believed they would be caught if they committed insurance fraud (8 percent);

Knew the definition of insurance fraud (23 percent);

Believed perpetrators deserve jail time (8 percent); and

Would report scams (32 percent).

Also ...

The number of people who would consider committing fraud decreased (73 percent);

The campaign cost slightly more than $18 per person to convince likely fraudsters to avoid committing this crime. Compare that with the IFPA’s average cost of $21,000 to $25,000 to investigate, prosecute and convict each insurance-fraud offender; and

Workers compensation

More than one in 10 small-business owners are concerned an employee will fake an injury or illness to steal workers-compensation benefits;

Nearly one in four owners also installed surveillance cameras to monitor employees on the job;

One in five owners feel unsure how to identify workers-compensation scams; and

More than half agree these are fraud flags: Employee has a history of claims (58 percent); no witnesses to the incident (52 percent); employee didn’t report the injury or illness in a timely manner (52 percent); and the injury coincides with a change in employment status (51 percent).

Some businesses illegally try to avoid paying full state-required workers compensation premiums by misclassifying employees as independent contractors. Such schemes are spreading.

The number of employees and size of payroll are two important factors that workers-compensation insurers use to gauge a firm’s premiums. Typically such workers are paid off the books to hide the evidence.

Another scheme involves misclassifying employees in high-risk jobs as holding lower-risk jobs. A dishonest roofing firm, for example, might tell its insurer that its high-risk roofers are lower-risk sales staff or clerks.

Workers also are denied state-required workers compensation benefits.

And misclassification avoids taxes, wages and other expenses. Overall, this crime gives employers an unfair advantage over competitors.

The Obama Administration expanded the definition of “employee” under the Fair Labor Standards Act in July 2015 to crack down on employers that misclassify workers as independent contractors.

10-20 percent of businesses misclassify at least one worker as an independent contractor.

Medical identity theft

Identity theft has spawned a costly offshoot: medical identity theft. Thieves steal a consumer’s personal information to lodge fraudulent claims against the victim’s health policy. This crime appears to be on the rise.

Medical thieves can heist your health-insurance number, Social Security number and other personal information. Often the information is stolen by employees at medical facilities, and resold on the black market. Thieves also may hack into medical databases or break into medical facilities.

Medical ID theft can cost a victim thousands of dollars and great stress. A victim’s life and health could be jeopardized if an ID thief’s incompatible medical information such as blood type or medicines becomes part of the victim’s permanent medical records.

Victims

Incidents increased 21.7 percent in 2014;

2.3 million Americans were victimized in 2014;

65 percent of victims paid an average of $13,500 to resolve the crime;

Victims learned their medical identity was stolen an average of three months after the incident; and

Victims spent an average of 200 hours correcting their compromised data.

Few consumers know what medical identity theft is or how much this crime can damage their credit and health.

Only one in six insured adults (15 percent) say they’re familiar with medical identity theft. Of those, only one in three (38 percent) could correctly define “medical identity;”

About one in five (22 percent) believe the most likely impact is that their health insurance could be cancelled. In truth, their health can be compromised by hazardous changes to their medical records; and

Nearly one in five consumers (19 percent) mistakenly believe it takes less than two weeks to restore their stolen medical identity. More than half underestimate or don’t how much it would cost.

Cyber attacks

Cyber attacks are causing an epidemic of compromises at healthcare organizations around the U.S. The breach goals remain unclear, though stealing sensitive patient data could involve medical identity theft.

Many believe the healthcare sector is ill-prepared to deal with growing incidents of attacks. The healthcare sector also lags behind financial services, which has spent considerable time and resources hardening its infrastructure.

More than 40 million Americans suffered a breach of their health records from 2009 through 2014;

There’ve been 1,170 large breaches of protected health information since 2009;

164 breaches of personal health information were reported to HHS in 2014 alone. The breaches affected nearly 9 million patient records. This was a 25-percent increase over 2013; and

Criminal attacks are the leading cause of healthcare data breaches in healthcare. ... Criminal attacks on healthcare organizations are up 125 percent over the last five years. ... And 45 percent of healthcare organizations say criminal attacks are the root cause of data breaches;

Half of healthcare organizations have little or no confidence in their ability to detect all patient data loss or theft; and

More than 90 percent have had a data breach. ... 40 percent had more than five data breaches over the past two years. ... Healthcare data breaches cost more than $2.1 million apiece. (ID Experts, May 2015)

Whistleblowing

The federal False Claims Act lets whistleblowers earn a portion of federal civil recoveries stemming from their exposing fraud against healthcare or other federal programs. The FCA also can lead to criminal charges. Whistleblowers tend to be insiders at the offending healthcare organizations, and thus have unique access to evidence.

The federal government spent $574.6 million to recover $9.38 billion in federal civil healthcare fraud related settlements and judgments between 2008 and 2012. That’s a 16:1 ROI;

The federal government collected more than $4.5 billion in federal criminal recoveries in False Claims Act cases. States collected $4.07 billion in civil recoveries. Overall, that’s a 20:1 ROI; and

False claims against federal healthcare programs such as Medicare and Medicaid accounted for $2.3 billion of the record $5.69 billion the U.S. Department of Justice obtained in settlements and judgments from civil cases involving fraud and false claims against the government in FY 2014;

That marks five straight years the justice department has recovered more than $2 billion involving false claims against federal healthcare programs;

Whistleblower actions recovered $14.5 billion in federal healthcare dollars from January 2009 through FY 2014. Most recoveries involved scams against Medicare and Medicaid;

Most of those scams involved pharmaceuticals. Cases involving hospitals, however, resulted in $333 million in FY 2014 settlements and judgments; and

The government also had significant recoveries for home-health services.

Healthcare

Overall

Scams against government and private healthcare insurers form by far the largest type of insurance fraud. The exact size of annual theft is unknown, and is the subject of considerable debate. Healthcare fraud likely steals tens of billions of dollars a year.

Healthcare expenditures in the U.S. are projected to reach $3.2 trillion in 2015 — or about $10,000 per person.

The federal health reform marketplace is vulnerable to fraud. CMS is at risk of granting eligibility to, and making subsidy payments for, ineligible healthcare enrollees.

About 431,000 applications from the 2014 enrollment period, with about $1.7 billion in subsidies, had unresolved inconsistencies as of April 2015 — several months the coverage year closed;

CMS didn’t resolve SSN inconsistencies for about 35,000 applications or incarceration inconsistencies for about 22,000 applications; and

In undercover testing, the federal marketplace approved subsidized coverage for 11 of 12 fake GAO phone or online applicants for 2014. The GAO sent false or no documents to resolve application inconsistencies. (Government Accounting Office, February 2016)